Self employedThere are more than 53 million freelancers in the United States, according to a 2014 study commissioned by the Freelancers Union. That accounts for about a third of the economy.

Whether you freelance full time or have a side gig in your off hours, it takes some financial know-how to make it work. Here are four important financial matters to plan for:

Cash flow

Freelancers sometimes struggle with uneven cash flow. Checks may not arrive when you expect. For people accustomed to having a full-time job where cash is seamlessly deposited into their bank account like clockwork, it can take some getting used to—and some savings to tide you over.

Be sure to pay yourself a salarys. You may also want to consider keeping your business and personal checking separate. That’s because you will need to keep records to help substantiate business expense deductions such as office supplies. Even if your business is something with extremely low overhead—you may find yourself paying a little extra for mundane things.

As a self-employed person, you may be able to deduct the cost, or part of the cost, of some of your business expenses—so it may make sense to track them apart from personal expenses. For more information, visit

Because freelancers don’t have the luxury of knowing that another paycheck is automatically coming in two weeks, it’s vital to establish an emergency fund and keep paying into it regularly. Retirement savings have to be a high priority as well. It’s easy to let savings slip, but you should treat retirement savings like money you save to cover taxes—it’s something you can’t afford to ignore.

Consider saving at least 15% of your pretax income for retirement. That amount would include any retirement savings contribution or match from an employer, where applicable.

Think about saving 5% of your after-tax income for emergencies. The usual suggestion is to save at least enough to cover three to six months’ worth of expenses. Once there, consider continuing to save 5% of take-home pay for unexpected expenses.

As a freelancer, you should also get in the habit of saving money for taxes.


Taxes need to be paid no matter where your income comes from. But without an employer to manage all the details for you, it can be confusing—and expensive.

The first thing to understand is the self-employment tax. Self-employed people pay up to 15.3% in self-employment taxes—12.4% in Social Security taxes up to certain income limits indexed for inflation ($127,200 in 2017) and 2.9% for Medicare with no income limit. Visit IRS.govOpens in a new window. for more information.

The next considerations are federal, and potentially state and local, income taxes. It’s a good idea to save more for taxes than you think you need. Combined with the self-employment taxes, you may need to save at least 35.3% of income for taxes.

Quarterly estimated taxes were another unpleasant surprise. It’s really about staying on top of your tax liability throughout the year. The hope is that you’re close to being on target when taxes are due in April.

Saving for the future

Hustling may be fine when you’re young, but eventually you may want to stop working and take it easy. Without an employer to push you into saving for retirement by automatically enrolling you in a retirement savings plan, you need to take proactive steps to save on your own.

One of the ways to accomplish this is by establishing a tax advantaged retirement account that allows you to make regular contributions. There are a few options for freelancers, including a traditional or Roth IRA. You’re allowed to contribute up to $5,500 a year in 2016 and 2017. Contributions to a traditional IRA may be deductible for the year the contribution is made. Earnings and contributions grow tax deferred until retirement.

Contributions to a Roth IRA won’t get you a tax break today, but you may be able to withdraw contributions and earnings tax free in retirement. A Roth IRA may be particularly advantageous for freelancers as you may have the ability to take penalty-free withdrawals of contributions at any time— although you should be careful about using your retirement savings as a piggy bank for short-term needs. That could defeat the whole purpose of saving for retirement. There are special rules on Roth distributions, be sure to check with your tax preparer or the IRSOpens in a new window. before withdrawing contributions.

In addition, you could set up a retirement account specially designed for independent workers and small businesses that could potentially let you save even more money, like a SEP IRA, a SIMPLE IRA, or a self-employed 401(k). Even if you can’t imagine scraping off 15% of your income for retirement savings at the moment, putting away a little bit now and gradually ramping up to 15% can be extremely worthwhile.


Crossing your fingers and hoping for the best isn’t a great strategy when it comes to your health or your finances. On the other hand, buying insurance can be expensive.

Health insurance is a major issue for freelancers. The biggest pain point we heard is finding affordable health insurance.

If you’re eligible, health savings accounts (HSAs) may be part of the solution. As a freelancer, you don’t get a company match for your retirement savings like full-time employees do, so an HSA, could be a good place for you to save for the long term.

It has to do with the tax advantages of the HSA—it’s an opportunity for freelancers to reduce their taxable income and then draw on the money tax-free3 for qualified medical expenses. If they don’t end up touching the money, it can grow tax-free until distributed. In addition, any money withdrawn to pay for qualified medical expenses will not be taxed. After age 65, you can also take money out of an HSA for any other reason besides medical expenses without incurring a 20% penalty. But in that case the money you take out is subject to income tax, like a traditional IRA.

Disability insurance is another important consideration as well. Employers often include some amount of disability insurance as a perk. But as a freelancer, you need to take steps to protect your income if you can’t work for a short or long period of time.

Source:  Fidelity Investments